By Emmanuel Addeh
Oil price continued its strong rally yesterday as lockdowns in the United States and some countries in Europe heralded a boost in fuel demand in preparation for the summer season and suppressing the impact of rising cases of COVID-19 infections in India, Japan and Brazil.
It was a good day for the commodity as both contracts hit the highest level since mid-March in intra-day trade and a return to $70 fast becoming reality, supported by a large fall in U.S. inventories.
India has routinely been the top buyer of Nigerian grades. Last year, 17 per cent of Nigerian crude exports went to India, equivalent to 300 barrels per day on an annual average basis.
India’s national demand for transportation fuels dropped by at least 20 per cent in April as regional governments introduced lockdowns once again, including the capital, New Delhi.
However, Spain which has maintained its role as an important buyer of Nigerian crudes, equivalent to about 0.23mbpd, trailing only India has remained sturdily on course, giving hope that Nigerian cargoes may not suffer at sea.
Brent crude, Nigeria’s oil benchmark, rose yesterday by over 80 cents, or 1.2 per cent, to $69.75 a barrel, while US West Texas Intermediate (WTI) crude was up 67 cents, or over 1 per cent to hit $66.53 a barrel.
Crude oil stockpiles fell by 7.7 million barrels in the week ended April 30, in the United States, more than triple the drawdown expected while petrol stockpiles fell by 5.3 million barrels.
The rise in oil prices to nearly two-month highs has been supported by COVID-19 vaccine rollouts in Europe and the United States where more than 40 per cent of U.S. adults have been vaccinated.
With the partial lifting of mobility restrictions, the expectation that tourism will return soon and the lure of the psychologically important $70 mark are all likely to have contributed to the price rise.
Goldman Sachs, the investment bank, had earlier in the week stated that it expected global oil demand to realise the biggest jump ever over the next six months, buoyed by higher demand for travel and acceleration of vaccinations in Europe.
It predicted that the commodity could hit $80 per barrel by the summer on the back of the magnitude of the coming change in the volume of demand, a change it noted supply cannot match.
By this time in May last year, crude oil was selling for about $30, after spiralling to the negative territory around March while Brent sold for as low as $10.
The federal government had set an oil production target of 1.86 million barrels per day and an oil price benchmark of $40 per barrel in the 2021 national budget.
While Nigeria has not been able to hit the 1.86 million barrels per day target due to the compulsory cuts by the Organisation of Petroleum Exporting Countries (OPEC), however, the rising price of the product, which is now close to $30 above the oil benchmark, could compensate for under-production and even leave more cash for government spending.
On the other hand, the return of petrol subsidy, which is being paid by the Nigerian National Petroleum Corporation (NNPC), now amounting to N77 per litre means that the additional petrodollars from the rising price does not exist in reality.
In March, the Group Managing Director of NNPC, Mallam Mele Kyari, said the corporation could no longer bear the over N120 billion monthly subsidy on the product.
He stated that the actual cost of importation and handling charges at the time amounted to N234 per litre, while the government was selling at N162 per litre.
“Our current consumption from our depots is about 60 million litres per day. We are selling at N162 a litre. The current market price is N234, which is the actual market price today. The difference between the two, multiplied by 60 million, times 30, will give you what we pay per month.
“This is a simple calculation you can do. If you want the exact figures from our book, I do not have them at this moment but it’s between N100 billion and N120 billion per month. We are putting the difference in the books of NNPC and we cannot continue to bear it,’’ he had said.
